ARCHIVED - Employees' or workers' compensation

What the "Archived Content" notice means for interpretation bulletins

NO.: IT-202R2

DATE: September 19, 1985

SUBJECT: INCOME TAX ACT
Employees' or workers' compensation

REFERENCE:  Paragraph 56(1)(v) and subparagraph 110(1)(f)(ii) (also subsection 5(1))

This bulletin cancels and replaces IT-202R dated July 14, 1980 and IT-202R Special Release dated December 29, 1980

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1. In this bulletin

(a) "compensation board" includes any employees' or workers' compensation board or commission in any province or territory of Canada, and

(b) "compensation" refers to the amount of an award, as adjudicated by a compensation board, which a worker or his or her dependants will receive as a result of the worker having suffered illness, injury or death in the performance of his or her duties of employment and includes any such compensation to which entitlement is provided under the Government Employees Compensation Act or any employees' or workers' compensation Act or Ordinance of a province or territory of Canada.

2. Prior to 1982, the amount of compensation that was received in a taxation year by any person (other than as the employer or former employer of the person in respect of whom the amount was paid) was excluded from income by virtue of paragraph 81(1)(h), which paragraph was repealed applicable to the 1982 and subsequent taxation years. The main income tax effect of the repeal of paragraph 81(1)(h), and other amendments to the Act, is that compensation received, while continuing to be non-taxable, is now included in the income of the person who receives it. The amount of compensation received in a taxation year is therefore relevant in determining

(a) the extent to which the recipient thereof may be claimed as a dependant by another taxpayer, and

(b) the amount that is the aggregate of the family net income and the other supporting person's net income for purposes of the child tax credit.

Inclusion in income

3. For 1982 and subsequent taxation years, the amount of compensation received in a taxation year by any person is, by virtue of paragraph 56(1)(v), required to be included in computing that person's income for the year.

4. For the purpose of paragraph 56(1)(v) the amount of compensation may be received either from a compensation board or from the employer or former employer of the person entitled thereto. An employee may, under the terms of an employment contract or collective agreement, or by reason of being granted injury leave with pay under the Financial Administration Act, be entitled to receive salary or wages during a period in which the employee is also entitled to compensation. Where, in these circumstances, the employee receives no payment from a compensation board, the amount received from his or her employer, to the extent that it does not exceed the compensation amount, will be included in the employee's income for the year, as compensation, under paragraph 56(1)(v). The excess, if any, will be included in the employee's income under subsection 5(1).

Deduction in Computing Taxable Income

5. For 1982 and subsequent taxation years, any compensation received by a taxpayer in a taxation year, that was included in the taxpayer's income under paragraph 56(1)(v), may, by virtue of subparagraph 110(1)(f)(ii), be deducted in computing the taxpayer's taxable income for the year, except any such compensation received by the taxpayer as the employer of former employer of the person in respect of whom the compensation was paid.

Payments received by Employers

6. Any amount received by an employer from a compensation board, or remitted by the employee to the employer, or any other amount paid to an employer in reimbursement of salary or wages paid by the employer is included, without exception, in computing the employer's income.

Loans or Advances

7. Where it can be established that an employee received a loan or advance from his or her employer which is to be repaid from future payments of compensation, the loan or advance constitutes neither income to the employee nor deductible expense to the employer. However, when the compensation is paid and is received by the employee, it will be treated in accordance with 3 and 5 above. The amount received by the employer from or on behalf of the employee in repayment of the loan or advance will not constitute income to the employer.